Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. (1 Tim. 6:17-18)

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Tuesday, January 18, 2011

5 Steps to a Successful Monthly Budget Plan

Budget Master

Mastery passes often for egotism. - Johann Wolfgang von Goethe

If people knew how hard I worked to get my mastery, it wouldn't seem so wonderful at all. - Michelangelo

I'm not trying to brag or anything, but I am a master at budgeting. I have been doing a consistent, monthly budget for over 5-6 years now. After following the principles of first Crown Financial, then Dave Ramsey, and then applying a few additional ideas from others, I have a successful track record of working a family budget.

A lot of so-called personal financial experts say that budgets are a waste of time. But then, these same so-called experts will turn around and say that you need some type of spending plan. Well, that is exactly what a budget is. It is simply putting down on paper how you plan to spend your income for a given month. In order to make your money more effective at accomplishing some great things, you need to tell it what to do and where to go, whether it be giving money back to God, paying off debt, saving for a rainy day, investing for retirement, or paying the bills.

Just to give you a quick rundown of how I work my budget, here is my budget cycle that I typically follow in a given month:

Step #1 - Create

A few days before the beginning of each month, I pull up my budget spreadsheet on my computer from the previous month, I re-save and re-title for the coming month, and then I re-adjust my budget category numbers as needed. Once you get into the "groove" of doing a monthly budget, especially using computer spreadsheets, this is pretty fast and easy to accomplish. Total work time is around 20-30 minutes.

Step #2 - Implement

This is where the rubber meets the road so to speak on your budget plan. Once I have figured out the budget and all the math works on the spreadsheet, I determine which categories I need to fund with my cash envelope system, which bills are auto-drafted from my checking account, and which ones I will pay using my debit card (such as paying for gas at the pump). At this point, I'm the most interested in determining which categories I will fund using cash. The categories that I typically fund are grocery store, dining out/entertainment, blow money, haircuts, and clothing. These are areas in which I need to pay cash or should pay cash in order to control my spending in these areas. So, once I know I know the amount of cash for each of these five categories, I determine the monetary denominations that I need to withdraw from the bank (such as 2-100s, 2-50s, 7-20s, and so on). I then write a check made out to "Cash" and put that with a sticky note with the various denominations I need. Then, I go to the bank to cash the check and get my envelope system money. Once I get home, I split up the cash into the five separate envelopes and I'm good to go for the next couple of weeks before the next pay period. Total work time including a trip to the bank is around 20-30 minutes.

Step #3 - Review

When the first half of the month is drawing to a close and my next pay period is coming up (I get paid bi-weekly on the 15th and 30th of each month), I take a little time to review where I'm at in my budget to make sure I'm on track. Total work time is around 10-15 minutes.

Step #4 - Fix

So after I review my budget mid-month, if I'm a little off in some areas, I re-adjust some of the categories as necessary in order to keep my budget balanced. This could effect how much cash is withdrawn for the second half of the month, so I need to re-crunch numbers as I move into the final step. Total work time is around 5-10 minutes.

Step #5 - Implement

This is simply a repeat of Step #2. I determine how much new cash I need for my envelope system in the final 2 weeks of the month, I determine the financial denominations of the cash, I write a second check made out to "Cash," and then I make another bank run to fund the envelopes. Total work time including a trip to the bank is around 20-30 minutes.

Conclusion

As you can see from these five steps to implementing a successful monthly budget plan, you will need to invest approximately anywhere between 75-115 minutes (1:15 - 1:55) of time on working the plan each month. This is assuming, of course, that you have a good budget system already in place and are kind of running on auto-pilot already. If you do not currently have a budget plan in place, it will take approximately 3 months (and a bit more time each month than me) to work out all the kinks before you feel like you have a handle on a good working system. Budgets do work over time, so the key is to be consistent in working your plan and to be determined to stick with it no matter what. Allow yourself to fail, because you will, especially at the beginning of the process. Learn from your mistakes, and keep working your budget no matter what!